FMC Corporation (FMC) Earnings Call Transcript & Summary

Thank you and good afternoon, everyone. My name is Adam Samuelson. I'm the agribusiness equity research analyst here at Goldman Sachs. We're happy, for the next session of our Industrials and Materials Conference, to have with us FMC Corporation. From FMC, we have Andrew Sandifer, their Chief Financial Officer. Mike Wherley, who runs their Investor Relations effort, is also on the line. So looking forward to a nice discussion on the crop protection market this afternoon. Just a reminder before we go into my questions, that you as the audience do have the capability to ask questions electronically. You should see a question-and-answer box on your webcast screens. We'll be getting to those over the course of the next half hour or so. But first, I'll kick it off.

And Andrew, thank you again for joining us today. Maybe to start, you just reported earnings last week. But just a view of -- posted a very strong first quarter, but a view of demand across your major geographies, areas of strength and areas that are being -- seeing a little bit more impact from COVID even as you've maintained a pretty healthy organic growth outlook for the year.

Sure. Thanks, Adam. Yes. We were quite pleased with the first quarter despite some headwinds from COVID, some disruptions and uncertainty. Still pulled in a very strong organic growth quarter, just above our midpoint of our guidance ranges across the metrics. So a solid, solid quarter for us. When we looked around the world -- why don't I just do a little bit of a tour of the world or regions and just sort of conditions and a few factors that are going on in each. I'd say, overall, as we look out for the full year, we're expecting it to be another very strong year for FMC. We're guiding to 8% organic growth, pretty evenly split between volume and price, obviously, having to overcome some pretty substantial FX headwinds. We can talk some more about that as folks are interested. But fundamentally, a very strong growth through the year and continuing the trend of FMC's Crop Protection business growing substantially above the overall market. When we look at the global crop protection market, right now, our current viewpoint, we think the total market on a U.S. dollar basis is largely going to be flat in 2020. We previously thought it would be up in low single digits. But given those FX changes and some disruption from COVID, that -- we've brought down that outlook. So again, FMC will grow well in excess of that, obviously, 8% organic growth, but the -- relative to a market that's flattish. We looked at -- when we looked at Asia, Asia is going to be a very strong contributor for FMC for our growth for the year. Asia and North America are probably the 2 fastest regions for the year. We did have a bit -- some COVID just related disruptions, particularly in China in the first quarter. We are seeing some disruptions as mitigating actions are taken in countries, particularly in India. We're working through that. I'll talk a little more about that. But the Asian market overall, we had expected to be a low single-digit grower for the market. Now we're anticipating to be down a bit versus the prior year, principally from FX headwinds and some of the COVID impacts. So let's talk a little more about those specific countries. China, we did see some disruption in the first quarter. China was probably the first and most aggressive to take mitigating actions around COVID that caused some disruptions in particularly movement of material. We had kept our plants in China running through the Chinese New Year holiday, and they continued running throughout that time period. Agchem is seen as an essential industry in basically every country in the world. So we were exempted from many of the lockdown issues. It really became a logistical challenge. We did end up seeing some loss of business, particularly rice herbicides that are used at planting where there may have been some missed applications. That's a part of that outlook where we've got some impact on volume from COVID. In India, we still have very healthy end-market demand. The implementation of mitigating measures in India has been a bit less coordinated than some other countries. There's a little bit of discord between local and state and national government levels at first. Things are settling down. Logistics, in terms of movement of product, has smoothed and gotten more simple. The constraints -- there were some very -- some temporary constraints on getting labor into our plants. That has also resolved. We found ways to work around that. And as it gets a little further along in the progression of the mitigating actions, it's becoming a bit more coordinated. So the -- so India continues to be a very strong driver of growth for us. And looking for the full year, we're very excited about the prospects there. We do recognize there's going to be some operating complexity. We are quite familiar with dealing with operating complexity and managing logistics and production on a very short cycle. We've been doing this for a couple of years, last 2 years, with some disruptions in our active ingredient supply. We've been able to manage around, still drive very strong organic growth and satisfy customer needs. So we've got a skill set and a tool set built to be able to manage through that. The other high point I'd point to in Asia is just the Australian market. After a couple of years of really tough weather and brush fires and everything else that could go wrong, starting to see some much better weather there. So we're expecting some good contribution from Australia this year. Moving to Europe. Europe is accelerating a little bit from our earlier expectations. Still low single-digits market growth. Europe will probably be the slowest-growing region for us, certainly on a dollar basis, but still growing year-on-year. There were a fair amount of disruptions in the first quarter as different countries put different mitigating actions in place, particularly with slowing down movement of materials and people across borders. That -- the green lane initiative the EU put in place, among other changes to the mitigating actions, has really largely resolved many of the logistical bottlenecks. There's still some challenges, but it's very manageable. We actually continued strong operations throughout the quarter -- first quarter despite some of the constraints. In fact, in our Italy plant, we never shut down. We kept running throughout the lockdown. It's not a huge business for us, but it's a meaningful one. So we're continuing to grow nicely in Europe. Big push to the east, a disproportionate amount of growth this year in Russia and Ukraine, places in the east, where we're more historically underrepresented and hoping for a little bit better weather in the northwest of Europe, where it's been dry in the last couple of years. Latin America, which is one of everybody's favorite topics, certainly an important region for FMC, but also important to remind everybody of the balance that FMC has, where certainly, Latin America is our largest region. But we don't have perfect 25% even distribution across the 4 regions, but it is much more balanced than it had been in the past and certainly more balanced than virtually any of our peer companies. Latin America. We're now expecting the market there to contract mid- to low single digits. And that's really driven by FX. Underlying volumes are very much intact, and demand is solid, but U.S. dollar sales will likely go down. We are continuing to have a very strong position in Brazil. Brazil was a big source of growth in Q1. Similar to the way it was last year. We had a very strong Q1, and then we saw more tempered growth rate through the remainder of the year. We would expect to see tempering of that growth rate coming out of the first quarter for Latin America and through the rest of the year and continuing to have well-above-market growth in Latin America, with that growth being more balanced, seeing growth in Argentina and Mexico, Argentina with soybeans and Mexico with fruits and vegetables, as well as across the Andean countries and some of the other small countries in Latin America. So certainly, we'll continue to have a very big position of strength in Brazil. But this year, Latin America growth is going to be a much more balanced story across the entire region. Moving in North America. Certainly, North America is important to us, but we are not a corn North America-levered company. Soybeans, a little under 20% of our product mix. Corn is about 8%, certainly lower than 10% of our total crop mix. So while they are important markets, we are not a company that pivots off of what happens to corn in the U.S. We do see the overall crop protection chemical market in North America growing in the low single digits, largely driven by acreage for row crops, but also some recovery in Canada. We talked a lot about Canada in the last couple of years in Canada, despite being very wet in the U.S. Midwest, Canada actually was in drought and wasn't a particularly good couple of years. So we're seeing pretty good activity, much better weather in particularly the soybean and corn-producing regions of the country at this point of the year, much further progress in planning. So we're looking forward to a very strong year in North America. And again, we'd expect our 2 fastest-growing regions this year to be Asia and North America. So that's a little bit of color in terms of demand and outlook across the different regions around the world, Adam.

That's really helpful, Andrew. So maybe we can take that and where we think beyond just 2020. And the drivers where FMC, both this year and in recent years and expected based on your medium-term outlook is it has been outgrowing the market. And try to deconstruct that a little bit and really understand kind of what is driving that? Is it just -- is it the diamide portfolio? Is it the unique opportunities associated with that? Is it just expansion of crops, expansion of distribution, new active ingredients? Just help us think about where FMC is really driving this very considerable and now multiyear period of market outgrowth.

Yes, yes. That's a great question. Thanks. I think, yes, we looked at ourselves and see very much an organic growth story, right? We had 11% organic growth in 2019, 9% organic growth in Q1 '20 and 8% forecasting for the year. And it's -- a big chunk of that has been volume-driven. So we are certainly growing and growing substantially faster than the market and growing very profitably faster than the market. Absolutely, the diamides have been a part of that market outgrowth. They are very strong products that customers want, along with a number of other key products that FMC has. So absolutely having diamide in the portfolio has been a big value. And there's absolutely been a benefit in the past several years with the complementarity of the DuPont-acquired business versus the legacy FMC business where there is much less customer overwrap than we had seen and some very strong synergies, if you'll excuse the word, from bringing the product portfolios together and broadening the market access. So having that really high-performing product portfolio and a much broader footprint that we have now through the series of acquisitions over the past 5 years, we have now a strong base to continue organic growth. And we're going to continue to grow the diamides, and I'll talk a little more about that here in just a second. But it's also a piece of starting to see the benefits of the long-term development pipeline. And over the next several years, we're going to start seeing some really interesting product introductions that are going to continue supporting that high level of organic growth and certainly well-above-market growth. And I think one of the other synergies -- before I move on to a couple of these other drivers, that we're seeing is customers are seeing what's coming from our pipeline. And they know they can see the potential value of those. And that drives them to want to have deeper relationships with us and have more business with us. So we've seen this in a number of countries. And Marc's talked about it in a couple of different calls, earnings calls, about behavior of customers where they're like, yes, we're going to do more business with you because we can see what's coming and we want to be a part of that. So that pipeline and that commercial organization is very supportive, and very closely connected to the customers are really helping us there. So let me talk about 2 big drivers of the growth algorithm here for the next couple of years. And certainly, one is -- the first is the continuation of our substantial growth with the diamide platform. When we laid out our 5-year plan back at the end of 2018, we thought we could deliver about -- between $1.3 million and $1.8 million of revenue growth. We've already delivered about $500 million of that -- well, we will deliver by the year-end about $500 million of that. And that's really driven by a couple of different pieces. Certainly, it's a big bunch of sales growth from our current product mix. There's introduction of new formulations and then as we get later into the plan horizon and into the middle of the decade, new products. So the diamides themselves are about probably 40% of that growth over the 5-year period. And that's driven by a bunch of different things that we're doing. It's driven in part by expanding the number of registrations, the number of crops and countries that those products are legally authorized to be sold in. We had -- we've increased the number of registrations for the diamides by 3 -- more than 300. This -- with over the -- or actually almost 350 for the past several years. We have another 90 registrations coming out this year for diamide-based products. We are continuing to develop new formulated products, starting with the first formulated product of a diamide paired with another active ingredient. That was just approved in the U.S. That's Elevest, which is a product that brings together Rynaxypyr and bifenthrin, gives you the long-lasting systemic control of Rynaxypyr, along with the very quick action and very quick kill of bifenthrin. We think that's going to be a very attractive product for farmers. We'll be introducing that here later this season in the U.S. and then ramping that out around the world. So the diamides continue to be a big driver of growth for us. We've had some very extensive conversations about the patent estate and our strategy with partners on how to protect that over the long term. We can certainly return to that topic if there's interest. But rather than deep diving in some territory there where we've talked before, let me talk about the second big driver of our midterm horizon and from '23 and certainly into the middle of the decade growth and that a couple of new products are coming out of our R&D pipeline. We introduced one of the first products to come out of our renewed effort for R&D and product development from FMC, we introduced a small fungicide product in the U.S., brand named Lucento last year. It's a relatively modest scope product. It's just U.S. only, but we are going to exceed our peak sales forecast of that one probably in the second, if not third year in the market and had really, really good adoption. The peak sales is around $50 million. It's not a huge contributor to growth, but it is a good example of bringing a new product to market and our, certainly, our ability to bring it successfully to market. The next product we'll be bringing to market is Fluindapyr. This is a fungicide that we've been codeveloping with a small tie-in crop protection chemical company called Isagro. FMC's prior innovation strategy prior to acquiring the R&D activity from DuPont was to partner with other companies who had identified and were developing novel compounds. Isagro discovered Fluindapyr, didn't have the resources to fully bring it to development, particularly for the global market. So we partnered with them back in around 2012 and have been developing it with them since. In a transaction that we announced last week, we're going to be buying out the remaining rights to Fluindapyr that we don't currently control. Isagro is shifting focus and want to monetize and move on to some other elements of their business. So we're going to take on the full ownership for that product. It increases the peak sales by giving us all of the geographies in the world for Isagro and raises it up to about $350 million to $400 million as the peak sales opportunity, so a very material product for us. We're going to start launching that product this fall with a small launch in Paraguay. Then we'll have another small launch in the U.S. for noncrop applications coming in the spring. We'll start getting the more broad introduction of Fluindapyr in 2022 in China, then Europe, then Argentina in 2023 and Brazil, importantly, in 2024. So this is a pretty attractive fungicide. It's a carboxamide class, which is the newest class of fungicides and another tool for growers to use in battling resistance that very quickly develops with fungus around the world. And as we roll it out across different countries, as we get registrations in place, we'll see that revenue ramp. The second product that's coming out, similar timing, is the herbicide bixlozone, which we've now branded under the trade name Isoflex. Isoflex is a herbicide for use in cereal crops. The really exciting thing here is it's a new mode of action. Meaning that it attacks a different biological pathway in the weed. So if a -- pick your favorite broad-use herbicide, glyphosate, Dicamba, whatever, that attacks a -- that kills a weed by going after a certain metabolic process in the plant. Bixlozone, Isoflex active attacks a fundamentally different metabolic process, so can be a great way of treating and dealing with resistant weeds. It's something that we're -- again, we'll be launching first in 2021 in Australia. And then we'll kind of phased launch as we get additional registrations around the world, so let's say we'll have it introduced in all 4 regions by 2025. We think the peak sales potential here is somewhere in the $450 million to $500 million range. So obviously, we've got to get all the registrations in place, and it'll take a little time to ramp up. But as we get to the middle of the decade, both of these products start to be very material contributors to the sustained organic growth for FMC. So we'll see tens of millions in sales in '21 from these products. And then rapidly growing from '22, '23, '24, '25. So it really is a big additive part to the FMC portfolio. And bixlozone, if it hits the $500 million peak sales potentially, I'd put it in our top 4, top 5 products globally. So it is a very meaningful introduction for us. And while I'll spare the long -- the continued discussion, there are a number of other very exciting products right behind these in the pipeline. We intended to go through a pretty extensive review of the pipeline at an Investor Day in June. Unfortunately, with the events and circumstances with COVID at the moment, it doesn't make sense to ask folks to try to come down to our research center in Delaware. So we're looking for alternate ways to try to share some more information there. But I think the top line story, Adam, here is we've got continued, long-term growth trajectory for the diamide to go through a very, very long and, certainly, in our longest range, strategic planning, mid- to high single-digit growth rate through 2030. And then coming in the middle of the decade, material contribution from these 2 new products, Fluindapyr fungicide and Isoflex active, a herbicide, that will be a big adder to organic growth as well. So we're really confident and really excited about the ability to continue to drive well-above-market growth for the mid- and long-term horizon for FMC.

That's very -- it's helpful, Andrew. So just -- I mean, you've laid out a 5% to kind of 7% organic revenue growth target through 2023. If I'm rolling up kind of what you just talked about on diamide and the new active ingredients that will start entering the market over the next couple of years, I mean, without necessarily saying formal guidance, it does sound like there is a pretty clear road map and pathway to sustain these kinds of growth rates or at least those targeted kind of growth rates through -- well into the second half of the decade. Is that a fair characterization?

Yes. I think we're not ready to sort of lay down a marker for a long-range target just yet. But yes, I think that, that logic is clear. I think obviously, we've got a little bit of churn in the portfolio every year with -- we do -- with raw products, we lose some registrations. But I think fundamentally, there are very solid drivers to maintain high growth and that 5% to 7% range that we've targeted for -- through 2023, yes, I think something like that over a midterm horizon and beyond that, quite defensible. But we haven't updated the strategic plan just yet. We're only in year 2 of this 5-year plan. So we want to keep pushing to deliver on this one first.

Okay. No, that makes a lot of sense. And maybe just continuing just on the diamide franchise a little bit. And you've laid out kind of adding to the strength of the patent estate and how that kind of looks over the course of 2024 through '27 as the different jurisdictions have different rules about competing products. But you've also articulated a strategy of pursuing external licensing opportunities for the active ingredients. And I just -- how should we, as investors or outside analysts, assess the success of that in -- and just really being able to see, hey, you're doing what you're saying you're doing. You're going to -- you're protecting that profit pool from the patent expiration and more importantly, keeping that kind of competitor capacity out of the market.

Yes. So look, it's a great question, and I think a couple of things to touch there. I think we have a very integrated, complete, comprehensive strategy on driving value over the long term from the diamides. It's anchored in the patent estate and particularly the manufacturing patents and the complexity of that process. But it's also reinforced by the branding -- brand names for Rynaxypyr, with chlorantraniliprole and then cyantraniliprole for Cyazypyr. Those have a big part in this play as well. And then what we're doing to continue to formulate and expand the product line through broader registrations, new formulated products like Elevest that we talked about a few moments ago. And then this piece around third-party partnerships, the licensing and long-term supply agreements. I talked a little bit about -- we've got 4 global agreements and about 45 country or regional-level agreements that -- where we have long-term supply arrangements with other crop protection companies, where they make a long term, as in well beyond patent exploration, commitment to buy exclusively from FMC. And we provide them active ingredient or formulated product that then they can sell as a part of their portfolio. Because we don't have any of the SG&A or marketing or distribution expenses related to it, our EBIT margins are very, very comparable with sales under that kind of business model as they are under our own brands. It allows us to have much -- I mean, to broaden greatly the reach of the diamides well beyond what we would be able to drive in terms of direct or organic growth from our own sales force to just limit physically what we can do. And it allows people to position them and formulate a need around for applications and tailwind for applications that fit with other products they might have in their portfolio. So that the combination of all these pieces, I think the best indicator people should look to is the continued well-above-market growth of diamides as a total product line for FMC. So we've seen the diamides grow. Yes, in the last year, diamides grew in the low to mid-teens. This year, we're expecting diamides to grow in the low double digit percent. Our long-term trend line, we think, is mid- to high single digits. So as you continue to see us progress, I mean, certainly, the best indicator will be, are we continuing to grow diamides well above the market growth? And then the profitability, because there's such a significant portion of our business, you'll see that as well in our margin performance. Unfortunately, because of the nature of this kind of partner relationships and the confidentiality that comes with them, we're not able to directly comment on sales through third parties as a specific breakout of the business. But I do think, again, that strongest indicator is going to be that continued growth at well-above-market levels. So again, we've shown several years of very, very high growth, some expected tempering of that growth. You can't grow 20% forever, but that mid- to high single-digit range is in that combination of partnerships through expanding registrations, through new formulated products. And just for the fact that these are a much more effective and more targeted chemistry that are much more attractive for use than some of the older, more harsh chemistries are good -- all good, strong drivers of long-term growth for the diamides platform.

Okay, great. And then I just want to remind the audience, feel free to provide questions into the Q&A box in the webcast. We'd love to get more audience participation on that front. But while I keep going, maybe shifting gears a little bit and talking about margins against this growth. And maybe, Andrew, just talk a little bit about some of the incremental pressures you've seen this year as it relates to logistics and supply chain costs. And as we think about next year and hopefully the absence of some of those, just help us think at a high level where some of the tailwinds could be coming in terms of -- especially as you roll out your ERP spending in 2021.

Certainly. Let's talk costs and the P&L first. So when we started the year, yes, we were guiding a cost headwind at EBITDA of about $61 million. About half of that cost was really cost increase in active ingredients and logistics costs. There was a chunk of increase in R&D expense, some tariff increase year-on-year. And we are benefiting from about $20 million in savings from exiting the TSAs with DuPont this year. So the net of that was about 60 -- again, it was about $60 million headwind, about half of which was raw material costs and logistics. As we got through the first quarter and through the beginnings of the COVID crisis and we've updated our guidance, we've taken some temporary cost-savings actions. So we've got actions in place to reduce SG&A and R&D, in particular, some minor operating expenses as well that will reduce costs in 2020 by about $60 million. It's almost offsetting entirely that initial headwind in costs. But we've also seen and are anticipating higher logistics costs and some supplier mix changes that we might have to adjust with that impact cost that have about a $25 million impact on cost for the full year. So rather than being a $61 million full year headwind as we thought at the beginning of the year, it's that $61 million, offset by $60 million in cost savings, but then adding back about $25 million in headwinds for COVID-related disruptions. So that gives us about a $26 million headwind at EBITDA on costs this year. So that cost is -- it's made up of a bunch of pieces that there are parts of it that when we look to '21, and certainly -- it's a little early to get too far into R&D, excuse me, into the outlook for 2021, but a couple of the moving parts we can certainly talk about. The -- as we think about what would change between this year and next year, our raw materials, particularly our active ingredient inputs, we've seen those costs flatten. Those costs get run through inventory. We turn inventories a couple of times a year. So it takes -- there's a bit of a lag before you see that. We're going to continue to see kind of the impact in our P&L this year from cost increases we experienced last year or in the early part of this year. But as we're seeing flattening off of the AIs, I don't really expect a lot of headwind from AI cost in 2021. For the non-AI raw materials, surfactants, packaging materials, other things that go into our finished products, many of those are tied to oil. And with lower oil prices, there's some opportunity for some modest tailwind there. Yes. So in terms of tailwinds, the other tailwind benefit going in from a cost perspective going into next year is really finishing out our SAP implementation and getting the full benefits from that SAP implementation. So as I mentioned, we've already gotten $20 million in savings from exiting the transition service agreements with DuPont earlier this year. And in '21, we would expect to get another $40 million to $60 million in savings, and that's driven by basically reconfiguring the way our back office works as we finish the implementation of the global SAP system later this year and shifting some fragmented work from broadly across many of our countries into shared service centers, for example. So we'll get that as a cost tailwind going into next year. And the final tailwind going into next year is some of these extraordinary logistics costs from COVID-related disruptions, we would not anticipate to hit us next year. Now on the opposite side, thinking about the offsets to those tailwinds. Certainly, one -- much of our cost reductions that we're doing this year are temporary. It's reductions in travel and marketing, promotional expense. It's resequencing R&D projects. So that swings back into the cost base next year. We would expect that we continue our trend line of growing R&D as we grow sales, long term being around that 7%-ish range of R&D of sales, where last year, we were about 6.5%. We're likely to be in that kind of a range this year again with the cost containment we've done. When you put all of those in balance, cost is really looking to be pretty much a push, maybe a slight tailwind going into '21. But the real driver of EBITDA growth in '21 is likely to be organic growth. If these various movements in and out on costs are essentially offsetting or a modest tailwind, it's really -- what's really going to drive that EBITDA growth year-on-year in '21 is going to be our ability to deliver continued organic growth. So it ties to some of the comments we've just -- topics we're just discussing in terms of the strength of the portfolio and our ability to drive organic growth over the near and midterm.

Okay. That's very helpful. And maybe just as we're getting close to the end of our time, just a quick discussion on the cash flow front. And really, you did decide to at least temporarily suspend share repurchases, and just help us think about the decision tree against still a pretty healthy EBITDA and top line outlook about resuming those repurchases or alternative uses for cash. And cash conversions remained a big focal point for investors and for you, just helping us think about that getting better.

Sure. So let's talk about free cash, and I'll try to do this efficiently. But first, when we talk about free cash flow, we are using a very strict definition of free cash flow. We mean basically the money that's left to either pay dividends, buy shares or make small bolt-on technology-type investments, like the Fluindapyr transaction we talked about and announced last week. All of the legacy spending, all of the SAP spending, all working capital, all of interest tax, everything else is out of our free cash flow number. So it really is what cash do we have available to deploy either to shareholders or to amplifying our organic growth. So that's a bit more strict of a definition than is often used for free cash flow. But we use that because it ties very closely with our capital deployment policy, which, despite taking a temporary pause on share repurchases, we have made no change in our capital deployment policy. We're going to fully fund the organic growth of the company. We're going to opportunistically buy some pieces of technology, make some small technology investments, but they're going to be at the dimension of what -- the deal we announced last week. They're not big transformational-type acquisitions. And then the remainder of that cash, the internally generated free cash flow as well as our incremental borrowing capacity, as we continue to grow the EBITDA and maintain our targeted leverage, those pools of cash are going to fund rewarding shareholders. And that's -- so increasing the amount of cash flow that we drive from our earnings, that conversion is an important part of that. Continuing to drive the absolute dollars of cash flow that we drive is also important. But I just want to put that in the right frame that free cash flow for us, the reason we're so focused on this and the reason we use such a strict definition, is that it's really tied to capital deployment and that capital deployment is a fully funded organic growth, very high bar but finding the right kinds of additive, small inorganic investments to make. And then the rest of it goes back to shareholders as long as we're maintaining target leverage. And that's -- not to put too fine a point, that's exactly what we've done. Since announcing the capital policy and our 5-year plan in Q4 of 2018, we bought $600 million in shares and paid $290 million in dividends. So almost $900 million has been returned to shareholders in cash, and we haven't even finished the second year of the 5-year plan yet. So very much -- that is the sort of putting our money where our mouth is. So let's talk real quickly about the conversion piece of that. I mean, free cash flow conversion is certainly an important metric and one we watch very closely. It has some limitations, but it has some value. And particularly, we use it because we're really trying to drive a change and demonstrate the trajectory of improvement of the efficiency of driving out cash, generating cash from the earnings we generate. That metric is moving upward fairly substantially. It was in the 30s last -- 30 percentages last year. It should be in the 55%, 57% range in our guidance this year. And we have a clear path to take in the upper 60%, 70% in range in 2021 and beyond. A couple of key levers to think about and why we can keep stepping up that cash conversion. First, we're spending about $100 million, $125 million this year in cash on finishing out our SAP implementation and then finishing off the last bits of integrating the DuPont acquisition. That spending essentially ends going into '21. Might be a few little follow-up things to do with SAP that allow us to take advantage of a few more productivity improvement opportunities, but by and large, that expense goes away. So that is a big pool of cash that becomes immediately a part of our cash conversion. Second piece is we've got a very strong focus on driving further working capital efficiency. I mean, certainly, if you looked at our balance sheet, we're not particularly fixed-asset intensive, but we do have a very significant investment in working capital. We're working on improvement in all 3 levers, that there's substantial opportunity, we think, and continuing to have great discipline around the receivables piece, certainly on payables. But -- and there's a particular gap in inventory where we've been somewhat handicapped by the disparate systems from our legacy pieces that don't talk to each other and don't have the same kind of information. We don't have the kind of visibility to be as aggressive in managing our inventory as we would like to be. As we get fully implemented with the single SAP system that's being designed and implemented for a focused ag company rather than for a multiline business in our previous life, we think we've got great opportunity to continue to drive some efficiency there. So working capital, driving continued efficiency there is the second lever that keeps stepping up the free cash flow conversion. The final piece is we do have legacy expenses. We have significantly -- that flow through our discontinued operations. We are the stub of an old conglomerate. These are liabilities related to long-ago businesses. They are relatively stable. They don't really grow, but they don't really shrink. It's somewhere $75 million to $125 million in a year -- in a given year of cash spending. It will, over time, become a smaller and smaller percentage drag on our conversion as we grow the earnings base. But I would not give anybody any reason to think that those are going to erode over time in absolute dollar. I think that kind of range of legacy expenditure, certainly over the mid-range horizon, you should expect. But we see improvement in the conversion metric just by growing the overall earnings. So those 3 pieces: that ending of the spending on SAP; driving working capital efficiency and a lot of the very focused action we're taking across the company to do that; and then growing -- sort of outgrowing, if you will, or reducing the impact of the legacy liabilities by growing the earnings base, are part of what get us stepping up to that 70% plus trajectory. And then that trend -- we think that trend continues. I think given the working capital dynamics of our business, the upper amount is somewhere less than 100%. But we haven't really pushed to where we think we can get that yet. But from showing a strong trajectory, I think we're going to demonstrate that continued improvement this year, and I think we've got a lot of levers to keep pushing to keep driving up cash conversion over the next several years.

Okay. Great. Well, that's some great detail. And I think we're just about out of time. So Andrew, Mike, I want to thank you and FMC for participating today. Thank you, everybody, on the webcast, and have a good afternoon. Great.

Thanks. Bye-bye.